The advanced-function ATM-style kiosks that 7-Eleven Inc. wants to use to stake a claim in financial services may not be coming to a store near you as quickly as expected.
The early stage of the project, which aims to put the machines, known as Vcoms, into about 3,500 of the company's 5,300 stores, has been plagued by low transaction volumes - particularly in check cashing, which was meant to be a central function of the kiosks.
Problems included sluggish marketing and placement of the machines in locations that did not draw heavy traffic from people who use check cashing services.
The fact that a lot of checks got jammed also did not help.
One of the companies involved in the pilot said that low transaction volumes resulted in high fraud rates. Separately, customers complained of poor telephone reception when signing up for the check-cashing service.
7-Eleven and Certegy Inc., the transaction processor involved with the project, characterize the problems as pains that they are trying to outgrow during the early part of the rollout. However, last month Certegy lowered its earnings guidance for 2002 and 2003, in part because of the reduced number of Vcoms expected to be deployed by the end of this year.
Carole Davidson, 7-Eleven's vice president of investor relations, said that there had been an initial marketing problem. The company was slow to decide "what was the best use of dollars," she said. "Should it be in-store greeters or a media campaign? It took us some time to figure this out."
After trying both, the company has decided to go with in-store greeters, but it will also conduct a media campaign during the rollout.
Demographics also contributed to the poor performance of some of the Vcoms, she said. "We recognized that we rolled it out to unique markets as opposed to looking at individual stores. Some stores might not have lent themselves quite as readily to the services."
In the future, stores will be selected on the basis of demand for the services, Ms. Davidson said. 7-Eleven stores sell about $4.5 billion a year of money orders, and there is a close correlation between money order sales and check cashing, so stores with high money order sales will likely get Vcoms, she said.
John Gillies, the general manager of transaction services for Certegy, of Alpharetta, Ga., said in a telephone interview that the early problems seem to be subsiding. Transaction volumes at the Vcoms has been rising substantially in recent months, transaction approval rates have doubled, and the loss ratio has dropped by 75%, he said.
These improvements gave Certegy the confidence to continue working on the project, though - in agreement with 7-Eleven - at a slower pace, he said.
"It was mutually agreed upon to fine-tune the service product," Mr. Gillies said. "We would slow down the rollout, learn more about the demographics, the risk management, which I thought was the wise thing to do."
After the Vcom check-cashing service did poorly in some stores, 7-Eleven hired a company to study the demographics for future locations, Mr. Gillies said. Certegy also looked at its database to determine the best locations in terms of both demographics and regulations, because "different states have different regulations of what fees you can charge," he said.
"This was a new experience for us, a new experience for 7-Eleven, and a new experience" for NCR Corp. which manufactured the machines, Mr. Gillies said. The companies decided, "Instead of doing a massive deployment, let's fine-tune what we have so when we bring it into the market, it's more acceptable."
By yearend 7-Eleven and Certegy expect to have between 250 to 300 Vcoms in the convenience stores. Fifty are currently being installed in Orlando, and 50 to 70 more will follow in Denver. Future markets are likely to include Miami, Washington, and Richmond, Va., Mr. Gillies said.
The Vcom can do things that the average automated teller machine cannot. Because of a deal with First Data Corp.'s Western Union division, 7-Eleven's machines can offer money orders and money transfers. Certegy handles the check-cashing aspect, which includes authentication.
The kiosks can also process some e-commerce transactions, along with more routine ATM transactions, through a partnership with American Express Co.
The Vcom project has been one of the cornerstones of 7-Eleven's growth strategy. James W. Keyes, the company's president and chief executive officer, has said that he expects the next wave of convenience to come in financial services.
The companies involved in the project say they have made a conscious decision not to alienate potential customers by setting stringent creditworthiness standards.
"The wrong thing to do is to tighten the risk system and make inaccurate turndowns," Mr. Gillies said. "The right thing to do was to make a more robust risk system to contain [risk], and that's what's happened."
Other companies involved in Vcom - including NCR and Cyphermint Inc., which is providing advertising for the kiosks - said they were not concerned about the venture's prospects.
Industry experts also characterized the setbacks as relatively minor.
Paul Jamieson, the president of FiSite Research, an Evergreen, Colo., consulting company, called it "another case of the concept of the partnership and the idea of what that partnership could deliver being delayed by the complex issues of actually executing against that concept."
If the companies market the Vcoms well, they will be successful, he said.
